East Development Limited v ALV Development Limited

[2020] NZHC 429

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1117

[2020] NZHC 429

BETWEEN

EAST DEVELOPMENT LIMITED

Plaintiff/Applicant

AND

ALV DEVELOPMENT LIMITED

Defendant/First Respondent

GERA PROPERTY LIMITED
Second Respondent (Third Party)

FREDERIC CHEE KIONG LEE
Third Respondent (Third Party)

GRACE KAKE NYUK WONG

Fourth Respondent (Third Party)

Hearing:	28 February 2020
Appearances:	J G Ussher for the Plaintiff/Applicant M R Taylor for the Respondents
Judgment:	6 March 2020

JUDGMENT OF POWELL J

This judgment was delivered by me on 6 March 2020 at 3.30 pm pursuant to R 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

EAST DEVELOPMENT LIMITED v ALV DEVELOPMENT LIMITED [2020] NZHC 423 [6 March 2020]

[1]    The plaintiff, East Development Limited (“EDL”), has sought to sustain freezing orders against the first and second respondents, ALV Developments Limited (“ALV”) and Gera Property Limited (“Gera”), and also seeks ancillary orders, namely provision of information, from all four respondents.

[2]    The orders sought by EDL are opposed by the respondents on the basis that they are neither necessary or appropriate.

Background

[3]    There is no dispute that in April/May 2017 ALV failed to complete a purchase of a property owned by EDL at 20 Waterloo Street, Howick. An initial summary judgment application seeking specific performance was however withdrawn by EDL when it became clear that EDL had in fact already cancelled the agreement. EDL subsequently sold the property to a third party and has sought damages from ALV for the loss suffered. A subsequent summary judgment application was however not given leave to proceed, the Judge being unconvinced that EDL “could satisfy me on a summary judgment application that it has acted reasonably in mitigating its losses and effecting a bona fide resale, such that ALV has no defence to its cause of action.”1

[4]    As a result, EDL’s claims have proceeded by way of ordinary proceedings and are set to be heard in August 2020.

[5]    The present freezing orders were granted by Downs J on 23 October 2019 and subsequently extended to the present hearing. Downs J declined the application for ancillary orders which continue to be sought by EDL.

[6]    The freezing orders were prompted when EDL became aware that ALV was selling a property it owned at 10 Michael Richard Place, Tamaki Heights (“Michael Richard Place”), which was in fact transferred from ALV to Gera on 8 October 2019. In applying for the freezing orders EDL sought to prevent ALV from dissipating the sale proceeds and Gera from dealing further with Michael Richard Place, while at the

1      East Development Ltd v ALV Developments Ltd [2018] NZHC 3456 at [42].

same time obtaining from the respondents an explanation for the transaction via the imposition of the ancillary orders.

[7]    Since the orders were obtained the third respondent Frederic Lee has filed an affidavit in which the following asserted matters are largely supported by exhibits:

(a)On 11 May 2017, ALV became the registered proprietor of a property

at Michael Richard Place;

(b)Between May 2017 and October 2018 ALV constructed a dwelling on Michael Richard Place;

(c)The development was financed by a construction loan facility from the Bank of New Zealand (BNZ) secured by a mortgage over the property and loans from the third and fourth respondents;

(d)Between October 2018 and September 2019 ALV attempted to sell Michael Richard Place. This included  placing  the  property  with  Ray White, and then Barfoot & Thompson;

(e)The term of ALV's BNZ loan facilities expired at the end of September 2019. The BNZ would not grant an extension of the loan and required repayment. As Michael Richard Place would not sell on the market, and as the BNZ required repayment of ALV’s loan facility, it was decided that the property was to be rented, and to be held in a separate company as this was not ALV's purpose as a property development company. Mr Lee and Mrs Wong incorporated Gera for this purpose.

(f)On 19 September 2019 ALV entered into an agreement for sale and purchase of Michael Richard Place with Gera;

(g)The purchase price of $1,739,130.43 plus GST (if any) reflected the fair market value of Michael Richard Place, supported as it was by two registered valuations;

(h)After payment of the purchase price by Gera, the outstanding loan amount was repaid to BNZ (being $1,438,653.570) and other fees and costs of sale were paid. The balance on sale of $296,567.27 was paid to ALV;

(i)Pursuant to a General Security Agreement and Credit Facility Agreement $300,000 was paid by ALV to Mr Lee and Ms Wong in repayment of the security and this sum was subsequently paid into their family trust, the Federace Trust;

(j)Following payment to the secured creditors, no assets remained in ALV.

[8]    Notwithstanding the explanation provided, Mr Ussher, on behalf of EDL submits that both the freezing orders and ancillary orders are necessary and appropriate. In particular, Mr Ussher submits that EDL continues to have a good arguable case against ALV, and that EDL lacks information with regard to other assets that may possibly be held by ALV and to this end seeks further financial information from ALV and Gera in addition to the material provided by Mr Lee. Noting Mr Lee’s indication that Gera is currently proposing to  lease  Michael  Richard  Place  it  is Mr Ussher’s submission that there can be no prejudice to Gera if the freezing order remains in place through to trial, with the freezing orders able to accommodate any tenancy of the property.

Discussion

[9]    There is no dispute between the parties as to the principles applicable with regard to both the freezing orders and ancillary orders. In broad terms it is necessary for EDL to show that it has a good arguable case in respect of its claim against ALV, that there are assets over which the freezing orders can be made, and that there is a real risk that the respondent will dissipate or dispose of those assets.2

2      High Court Rules 2016, r 32.5. See also Murren v Schaeffer [2018] NZCA 318 at [16].

[10]   Having considered the application carefully I am satisfied that neither the freezing orders nor the ancillary orders are necessary or appropriate to protect EDL’s position.

[11]   First, it is clear that notwithstanding ALV’s breach of the agreement for sale and purchase in respect of 20 Waterloo Street, the real issue to be determined is whether EDL has appropriately mitigated its loss. In particular, I note that while the amended statement of claim has quantified EDL’s claim in the sum of $434,857.96 as at July 2019, the bulk of this sum is in fact made up of interest, with only $160,000 being attributed to the reduction in sale price achieved after ALV failed to settle.

[12]   Of significance, there is no evidence or other information before the Court such as to cast doubt on the account provided by Mr Lee. Therefore, on the basis of the evidence before the Court, it appears that there are no assets of ALV upon which the freezing orders take effect. Any suggestion that there may in fact be other assets of ALV is simply speculative. On the other hand, there is also no evidence before the Court to suggest that Gera acquired Michael Richard Place other than through fair value. In the circumstances there can be no basis for any freezing order in respect of property held by Gera, including Michael Richard Place.

[13]   It is also noted that EDL has not challenged the existence of the General Security Agreement in favour of Mr Lee and Ms Wong and in any event no freezing order over Mr Lee or Ms Wong’s assets, let alone the assets of their family trust is in fact sought.

[14]   Leaving aside the lack of any assets upon which a freezing order could be imposed, there is otherwise no evidence before the Court of any intention by either ALV or Gera to dissipate any assets.

[15]   In such circumstances, with the lack of any basis for freezing orders to be imposed, there can be no basis for any ancillary orders either. In any event, sufficient information has been provided by Mr Lee about the Michael Richard Place transaction and further information about the financial position of both ALV and Gera cannot be justified.

Decision

[16]   The freezing orders are accordingly discharged and the applications for ancillary orders dismissed.

[17]   The respondents are entitled to costs. In the event that these cannot be agreed as between counsel within one month I will determine the issue following the filing of memoranda.

Powell J